Bill would cap payday loan interest for jobless

New legislation introduced Friday targets payday lenders who offer loans to the unemployed.

Assemblywoman Nancy Skinner (D-Berkeley) introduced a bill that would cap interest rates for loans to the jobless at a percentage so low it would all but eliminate the advances.

The bill was hailed by critics who argue that the high-interest loans exploit the unemployed, sucking them into a cycle of debt.

If the bill becomes law, annual interest rates for borrowers using their state unemployment checks as proof of income would be capped at 36%.

The controversial loans, traditionally offered to people with jobs, can currently charge 459%.

"This bill would help protect some of the most vulnerable people in California," said Ginna Green, a spokeswoman for the Center for Responsible Lending, an advocacy group.

But industry officials say the loans are a service, offering short-term credit to borrowers sure to be turned down by conventional banks.

"We do not see how eliminating market choices benefits consumers," said Greg Larsen, a spokesman for California Financial Service Providers Assn.

The bill's introduction comes just weeks after a Times article spotlighted the practice, which has intensified as the state's jobless ranks have swelled. Skinner said she was spurred to introduce a bill curbing the loans after an aide brought the article to her attention.

"These are people in a desperate situation, who lost jobs through no fault of their own," said Skinner, adding that she's been alarmed to hear that an increasing number of her unemployed constituents are taking out the short-term loans.

The hundreds of payday loan operations across the state offer borrowers a maximum loan of $300 with a $45 fee. Borrowers leave a postdated check for the loan amount.

A typical customers will take out such loans about 10 times a year, by some estimates.

Skinner's bill is similar to federal legislation passed in 2006 that smothered payday lending to military personnel by lowering the annual percentage rate cap. That legislation was prompted by concerns that payday loan debt was affecting deployment readiness.